Conflating: The Big Con

For those of you who have been following City Council meetings and/or reading the media coverage of them, the recent discussions surrounding Fund 400, the Cost Allocation Plan (CAP), and the User Fee Study must leave you terribly confused. We would be surprised if you weren’t.

The City’s Executive Team and the Council are conflating three issues and presenting them as one big slap at prior staff. For instance, in a recent Chico News & Review article that we mentioned in a previous post, Councilmember Sorensen made the following comments:

“Councilman Mark Sorensen noted that the city had paid the consultant some $37,000 for work on the [User Fee Study] report with the goal of better aligning revenues with actual operating expenses. He noted that it came to light only this past February.”

This is false. As I informed the Council during its October 1, 2013 budget discussion, via a reading of the Finance Committee minutes, the User Fee Study was brought forward in February 2012. Since the Mayor and Council waited to respond until after I had left the podium, as usual, I will have to use another 3-minute free speech session to remind them of one tiny little fact they seem to have forgotten:

Once the Study was presented to Finance Committee, the Committee had absolute authority to direct staff’s actions. The Committee could have directed us to use the Study to build a bonfire in the municipal parking lot; or hold the Study for revision once the economy settled and more accurate staffing levels and project volumes could be developed; or take the Study forward to the full Council in its existing (arguably indefensible) condition; and that is what would have happened. Period.

In the nauseating, saccharine tone Councilmember Goloff typically reserves for dealing with us, she asked Nakamura to prepare a timeline of the project. Since there is not a soul left on City staff with first-hand knowledge of what happened, we eagerly look forward to seeing it.

“Sorensen had done some investigation on his own, and explained that he believes the study was deliberately not brought to the council because it indicated that the general fund was going to take a $2.5 million hit…”

The $2.5 million hit to the General Fund was a result of the CAP, not the User Fee Study. The CAP is a completely separate document, prepared for the Finance Department. Its only relationship to the User Fee Study is the dollar amount of citywide overhead costs it identifies as attributable to departments/divisions within the scope of the Study.

“…since the city could not possibly charge enough for the overhead getting dumped on Fund 400, among other funds.”

Fund 400 has absolutely no connection to the User Fee Study. Again, the overhead being ‘dumped’ is related to the results of the CAP.

“It would have severely slowed our accumulation of debt in those funds, and I think that’s why it was withheld—so the city could continue to rack up the debt,” he said.

The final comment is so absurd as to not even merit a response. Does anyone really believe staff’s agenda was to intentionally run the City into further debt?

As we move forward, we will be writing more detailed posts explaining the three separate but equally important pieces of the City’s financial puzzle, but for now, we simply want to sort them out for you.

Cost Allocation Plan (CAP): This plan looks at citywide costs for indirect administrative support services (overhead) from ‘provider’ departments (City Council, City Manager, City Clerk, City Attorney, Finance, Human Resources & Risk Management), and then distributes those costs, via a very complex matrix with multiple allocation bases, to each ‘recipient’ department. The ‘recipient’ department costs are tallied by fund, and that amount is allocated to the General Fund to pay for each fund’s share of the indirect overhead costs. If the City opts to use a CAP to distribute indirect costs, it must be completed and adopted by Council before the User Fee Study can be updated.

User Fee Study: This study identifies and quantifies the true cost of services provided by the City’s Planning, Building, and Development Engineering divisions, including citywide indirect overhead as determined by the CAP. Some of those costs are recoverable by fees, which are calculated within the Study, while other costs are unrecoverable and must be funded by another source, typically the General Fund.

Fund 400: This fund is used to collect and hold most Capital Projects costs, including direct charges to specific projects, direct administrative support, and citywide indirect overhead (via the CAP). These costs are subsequently allocated out to other City funds, based on each fund’s relative participation in the overall activity in Fund 400.

For everyone’s sake, we hope someone on City staff will be able to separate and provide the Council with a better explanation of these three very different components of municipal finance. We did not set out to embarrass the Council, either collectively or as individuals, but the ongoing stream of misinformation being provided during public meetings and in the media cannot continue to go unanswered.